Japan's Real Wages Continue To Drop On Rising Inflation Pressure
The real wages in Japan continue to decline at a fast pace amid the rising inflation in the country. In fact, such a speed of decline was not seen during the last 9 years!
According to analysts, the real reason behind this decline in real wages is the inflation that stands at 4 decades high (40 years). Such high inflation in Japan has reduced the consumer's purchasing power despite the stimulus measures by the policymakers.
Currently, wage trends in Japan are a hot topic for market players. For starters, the Bank of Japan made it clear that its target of 2% inflation and pay hikes are key pillars to reversing its lost monetary policy.
In addition, the BoJ is also expected to keep its interest rates at historically low levels. However, the leadership change at BoJ could put an end to the current policy.
Real Wages Drop By 4.1% In Japan.
Real wages are adjusted based on the inflation rate and thus represent a true measure of consumers' purchasing power. The real wages reading for January dropped by 4.1% when compared with the same time period last year.
According to analysts, such a huge drop in real wages was only last seen in 2014. The data also revealed that the government subsidies for gas and electricity charges also played a key role in this development.
For the most part, the talks for wage hikes are now gaining momentum as we approach the annual labor meeting. In addition, the Bank of Japan will also be under increased pressure to change its yield curve control policy.
Similarly, some major Japanese companies such as Nintendo and Toyota have also announced plans to increase the pay for their employees.
However, the pay rise could eventually lead to more inflationary pressure in Japan as it would increase consumer spending and demand. But considering how Japan's policy is different from the rest of the world, there's a good chance that the central bank will have an idea of how to get out of this situation.